Growth in wages slows down

Low inflation will mitigate impact on households and firms looking for custom: economists.

The construction sector has recorded the largest increase in employment of all sectors. Photo / Mark Mitchell

Wage growth continued to slow in the first three months of the year, but economists said low inflation would mitigate the impact on households and businesses chasing the consumer's dollar.

Private sector salaries and ordinary time wage rates grew 1.8 per cent over the year to March, down from 1.9 per cent three months ago and 2.1 per cent six months ago, according to Statistics New Zealand's labour cost index (LCI).

Also published yesterday was its quarterly employment survey (QES). It found total gross weekly earnings - the combined wage and salary income of all employees - were up 4.4 per cent on a year ago, down from 4.6 per cent in December and the weakest annual increase since December 2010.

That is despite 29,000 more filled jobs and 23,000 more full-time equivalent employees (where two part-timers count as one full-timer), both up 1.7 per cent for the year.

It suggests the strong 1.5 per cent jump in real private consumption in the December 2012 quarter will prove to be a flash in the statistical pan.

Among the 13 per cent of salaries and wage rates in the LCI survey which increased during the March quarter, the median rise was 2.4 per cent, the smallest for 12 years.

However, the LCI measures increases in pay rates for the same quantity and quality of labour. Rises reflecting experience, promotion or otherwise related to the performance of an individual employee are filtered out.

The unadjusted LCI, which leaves them in, rose 0.7 per cent in the quarter (for the private sector) and 3.3 per cent for the year.

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Bank of New Zealand economist Doug Steel said that implied decent real wage growth, given annual inflation of just 0.9 per cent.

"Real wage growth goes some way to explaining why consumers are confident. After all, it is not so much what you get paid, but the purchasing power of that money," he said.

For construction workers in Canterbury, wages have risen 4.3 per cent over the past year, more than twice as much as in the rest of the country, but the latest quarterly increase, 0.5 per cent, was the smallest for a year.

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"Wage costs are clearly increasing in the region, but for now seem to have remained localised," ASB economist Daniel Smith said.

"The smaller increase in the March quarter also suggests that wage cost increases are not getting out of hand."

The construction sector recorded the largest increase in employment in the QES, which is a survey of firms rather than households.

In full-time equivalent terms the number of construction workers rose 9100 or 9.9 per cent over the past year, while the number of health workers rose by 4600 or 3.1 per cent and the manufacturing workforce fell 3400 or 1.9 per cent.

Regional contrasts were also evident in the data.

Westpac economist Felix Delbruck said employment was up 7 per cent in Canterbury compared to 2.4 per cent in Auckland and 1.7 per cent in Wellington, while shrinking 0.6 per cent in the rest of New Zealand.

"Along with the soft headline wage result and lacklustre overall jobs growth, this will leave the Reserve Bank comfortable keeping the official cash rate on hold for now," Delbruck said.

"As time goes on we do expect the accelerating Canterbury rebuild and a rising housing market to result in broader inflation pressures and prompt interest rate rises - but not until next year."